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The Chancellor’s Autumn Statement 2015 and personal tax

There were no real shocks from the Autumn Statement last Wednesday 25 November apart from an apparent U-turn by the Government which announced there will now be no cuts in working or child tax credits for 2016/17.

The big tax news for individual taxpayers is an extra 3% stamp duty land tax charge on the purchase of additional residential properties from 1 April 2016.  This will not however apply to residential properties in Scotland which are subject to Land and Buildings Transaction Tax (LBTT)).

Other key announcements, some or all of which will affect you as a UK resident taxpayer:

Stamp Duty Land Tax (SDLT) changes

There will be a 3% rate applied onto the existing SDLT where a second or additional residential property (over £40,000) is purchased on or after 1 April 2016.

The use of the property is irrelevant and so it will apply whether it is to be rented or used as a second home.

Companies and funds making “significant investments in residential property” (thought to be a minimum of 16 residential properties) are likely to be exempted from the additional charge.

SDLT does not apply in Scotland so this will not affect the purchase of Scottish residential properties which are subject to land and buildings transaction tax (LBTT).

From April 2017, SDLT will be paid within 14 days of completing a property purchase rather than the current 30 day limit.

Digital tax accounts

The government has announced that it will invest £1.3 billion to transform HMRC into one of the most digitally advanced tax administrations in the world.

As announced in the Summer Budget 2015, the government wants to introduce digital tax accounts to replace the current self-assessment system.

This should lead to HMRC collecting tax payments earlier in most cases.

Key details so far are:

HMRC has issued a user-friendly document to explain how it intends digital accounts to work: HMRC digital accounts document

ISA Update

The Government consulted on whether to extend existing share ISA investment to include debt securities (effectively loans) offered via a crowdfunding platform, for example Funding Circle. The Government has now agreed to include these type of securities as qualifying ISA investments.  The link to the consultation is here: Crowdfunding ISA investment consultation

The Government will continue to explore the case for including equity based crowdfunding (investment in shares).

The ISA, junior ISA and child trust fund annual subscription limits are to be frozen at 2015/16 levels in 2016/17. These are £15,240 for ISA and £4,080 for junior ISA and child trust funds.

Finally, the tax-free status of an individual’s ISAs will be retained by his personal representatives following his death. Currently the deceased’s ISAs are taxable during the administration period. This change is expected to be included in the Finance Bill 2016.

Pensions tax relief changes in the pipeline

The Government announced changes to pension tax relief in the Summer Budget 2015, which restricted the benefits of pensions tax relief for those with incomes, including pension contributions, above £150,000.  The Government has now gone through a consultation process on possible further changes to the way in which pensions work: Pensions tax relief consultation

One of the options is that instead of receiving tax relief on the contribution, the pension  savings will work more like an ISA, with a Government top-up and tax-free extraction on retirement.  The Government will provide an update on this at the March 2016 Budget.

Tax-free childcare scheme

The government welcomed a judgment from the Supreme Court in July 2015 that found the government’s proposals for delivering Tax-Free Childcare to be clearly lawful. This has delayed the launch of the new scheme and so the existing Employer‑Supported Childcare scheme will remain open to new entrants until Tax-Free Childcare is launched in early 2017.

Under the new scheme, eligible families will get 20% of their annual childcare costs paid for by the Government. The way it works is that for every 80p they pay into a newly-created Childcare Account, the Government will contribute 20p. This could mean up to £2,000 per child  which is the maximum relief available (the scheme assumes a maximum of £10,000 per year childcare costs per child).

To be eligible for Tax-Free Childcare, families will need to:

Diesel company car supplement

Currently the appropriate percentage used to determine the amount of tax due on an employee’s use of a company car is three percentage points higher if the car in question runs on diesel.

That 3% supplement was due to be abolished for 2016/17 onwards, but the Chancellor announced today that the supplement will remain in place until April 2021.

Tax incentivised investment

All remaining energy generation activities will be excluded from Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT) and Social Investment Tax Relief (SITR) schemes from 6 April 2016.

The primary aim of these schemes is to provide funding for small companies but often as part of new investment some reorganisation of capital may be needed. This can involve the need to purchase the shares of existing shareholders (called “replacement capital”).

There will now be increased flexibility for replacement capital within the EIS and VCT schemes, all subject to state aid approval, but this should make it easier for investors and companies to operate within the scheme.

Entrepreneur’s relief

The use of entrepreneur’s relief, where capital gains are taxed at 10% (rather than 18% and 28% rates) was restricted in 2015-16.

Good news! The Finance Bill 2016 may now ensure entrepreneur’s relief is allowed where a genuine commercial transaction exists.

Further information is contained at ICAEW technical release

If you would like to talk more about how the Chancellor’s Autumn Statement might affect you,  please call me or drop me an email.